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Redistributing Gains from Globalisation

  • Hartmut Egger
  • Udo Kreickemeier

This paper analyses the effects of redistribution in a model of international trade with heterogeneous firms in which a fair-wage effort mechanism leads to firm-specific wage payments and involuntary unemployment. The redistribution scheme is financed by profit taxes and gives the same absolute lump-sum transfer to all workers. In this setting a higher tax rate reduces aggregate labour income and makes the income distribution more equal, with unemployment remaining unaffected. International trade increases aggregate income, income inequality and the unemployment rate, ceteris paribus. If, however, trade is accompanied by a suitably chosen increase in the profit tax rate, it is possible to achieve higher aggregate income and a more equal income distribution than in autarky, provided that the share of exporters is sufficiently high.

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File URL: http://www.nottingham.ac.uk/gep/documents/papers/2008/08-29.pdf
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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 08/29.

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Handle: RePEc:not:notgep:08/29
Contact details of provider: Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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  1. M. Del Gatto & G. Mion & GIP. Ottaviano, 2007. "Trade Integration, Firm Selection and the Costs of Non-Europe," Working Paper CRENoS 200703, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
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